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The spirit of the ECOWAS common external tariff

I know! You are tired of reading about the border closure. Enough with that already. I apologise but as long as the borders remain closed, we will have to keep talking about it. Each time I read or listen to some analysis about why the borders are closed, I get the sense that people do not really understand the reality of the region we are living in. So, I will try to add a bit of context here just so we have more information when discuss the consequences of the closure.

We know the history of the borders of current African countries. At some point in 1884 a bunch of Europeans sat down in Berlin and carved out pieces of the continent as their territories. They basically got a map and drew lines and divided the continent. Those divisions ended up being countries after independence and those borders carved up in Europe mostly remain the borders today. However, when they actually went to these borders, they realised that they mostly made no sense. Towns were split in half. Ethnic groups ended up with the left side in one country and the right side in another. There were mostly no geographical demarcations like river or mountains. Basically, there were just arbitrary lines in the sand. They stuck with them though. And today those borders are still the borders.

The problem however is that when you think of operating as an independent country, those borders become logistical nightmares. You cannot really man them because the costs of doing so would be too much. You cannot really justify splitting families and communities with centuries of history. And as far as trade policy is concerned, you cannot really stop people from moving things in and out. At least not sustainably. You can have trade policy but if your neighbours do not have similar policies then you end up with multiple prices for the same goods and arbitrage opportunities that render your trade policy useless.

So, given this border reality what was the agreed solution? Cooperation of course. You may not be able to police your artificial borders, but you can police your ocean facing borders much more easily.

If you all agree to have the same trade policies then you only have to enforce at the seaports. Of course, there are issues with regards to making sure that customs duties and other trade rules are obeyed. But the fundamental issue is the agreement. The agreement that we will all charge the same set of duties for goods that come into the region and we will all have the same set of rules around international trade with countries outside the region. The birth of the ECOWAS common external tariff policy.

Unfortunately, Nigeria has recently had other philosophical ideas about trade compared to our other ECOWAS counterparts. Since the foreign exchange crisis in 2015 we have taken our already protectionist leaning to new levels. Produce what you consume. Ban imports of X and Y. Restrict access to foreign exchange for so and so. You name it. The result is that we have raised tariffs and effectively banned imports of many things. We did this without carrying our neighbours along although even if we wanted to, they probably would not have agreed to go down that road. Some of our ECOWAS neighbours still have sense when it comes to trade policy.

The expected outcome of our abandoning the spirit of the CET is that we have ended up back where we were in the beginning with prices for many goods that are so different that the arbitrage opportunities are too profitable to be ignored. Smuggling has of course soared as a result. Our response has been to line troops across the border and block everything. We know we cannot do it forever and we know doing it will be disastrous for the economy, but we are doing it anyway. Sense be damned.

The other minor issues are still there, and policy makers continue to focus on those minor issues. Is transhipment a problem? Yes, it is. Is the “rules of origin” problem there? Yes, it is. But those are really just minor issues. The major issue is that we have abandoned the idea that we need to cooperate on trade policy with our neighbours, and that issue is all on Nigeria. If we really want to stop smuggling then we need to go back to cooperating.

NONSO OBIKILI

 

Dr. Obikili is chief economist at BusinessDay

 

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